DE LA SALLE UNIVERSITY MANILA

RVR – COB DEPARTMENT OF ACCOUNTANCY

REVDEVT 3rd Term AY 14-15

Theory of Accounts
TOA – Long Quiz 1 Prof. Francis H. Villamin

Multiple Choice:

1. Which of the following is not within the scope of the Framework?

a. Form of presentation of financial statements
b. Nature and definition of the elements of financial statements
c. Objectives of financial statements
d. Qualitative characteristics of financial statements

2. What is the objective of financial statements according to the Framework?

a. To prepare and present a statement of financial position, a statement of comprehensive income, a
statement of cash flows, and a statement of changes in equity
b. To prepare and present comparable, relevant, reliable and understandable information to investors
and creditors
c. To prepare financial statements in accordance with all applicable Standards and Interpretation
d. To provide information about an entity to external users that would help them in making economic
decisions and assess the effectiveness of management’s performance

3. The conceptual framework is intended to establish

a. generally accepted accounting principles (GAAP) in financial reporting by business enterprises.
b. the hierarchy of sources of GAAP.
c. the meaning of “present fairly” in accordance with GAAP.
d. the objectives and concepts for use in developing standards of financial accounting and reporting.

4. Which statement is incorrect concerning the objective of financial statements?

I. Financial statements provide all the information that users may need to make economic decisions
since they largely portray the financial effects of past events and do not necessarily provide
nonfinancial information.
II. Financial statements show the results of stewardship of management or the accountability of
management for the resources entrusted to it.
a. I only
b. II only
c. both I and II
d. neither I nor II

5. Which statement is incorrect concerning the conceptual framework?

a. The framework applies to the financial statements of all commercial, industrial and business reporting
enterprises, whether in public or private sector.
b. The framework is concerned with special purpose financial statements including consolidated
financial statements.
c. The framework is not a Philippine Financial Reporting Standard and therefore does not define
standard for any particular measurement or disclosure issue.
d. There is nothing in the framework that overrides any PFRS.

6. The conceptual framework deals with the following except

a. generally accepted accounting principles.
b. the definition, measurement and recognition of the elements of financial statements.
c. the objective of financial statements.
d. the qualitative characteristics which make the financial statements more useful to the users.
 TOA Long Quiz 1 2

7. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in
recognition of
a. economic entity.
b. legal entity.
c. stable monetary unit.
d. time period.

8. Which statement is incorrect concerning faithful representation of accounting information?

a. The information must be complete within the bounds of materiality and cost.
b. The information must be neutral; that is free from bias.
c. The information must represent faithfully the transactions it purports to represent.
d. Transactions are accounted for in accordance with their legal form and not with their substance and
economic reality.

9. Users are assumed to have a reasonable knowledge of business and economic activities and accounting
and a willingness to study the information with reasonable diligence. This is the characteristic of
a. comparability
b. relevance
c. reliability
d. understandability

10. An asset is
a. a present obligation of the entity arising from past event, the settlement of which is expected to result
in an outflow from the entity of resources embodying economic benefits.
b. a resource controlled by an entity as a result of past event and from which economic benefits are
expected to flow to the entity.
c. a resource controlled by an entity as a result of past event and from which economic benefits are not
expected to flow to the entity.
d. the residual interest in the assets of the entity after deducting all of its liabilities.

11. Information has the quality of relevance when

I. it influences the economic decisions of users by helping them evaluate past, present or future events
or confirming or correcting past evaluations.
II. it is free from material error and bias and can be depended upon by users to represent faithfully that
which it purports to represent.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

12. These are the attributes that make the information provided in financial statements useful to users.
a. Fundamental and enhancing qualitative characteristics
b. Fundamental and enhancing quantitative characteristics
c. Qualitative and quantitative characteristics
d. Underlying assumptions

13. An important implication of this qualitative characteristic is that users are informed of the accounting
policies employed, changes in those policies and the effects of such changes.
a. Comparability
b. Consistency
c. Full disclosure
d. Understandability

14. The underlying assumption/s mentioned in the Framework is/are

a. accrual basis and going concern
b. accrual basis
c. going concern and time period
d. going concern

15. Under this concept, the effects of transactions and other events are recognized when they occur and they
are recorded in the accounting records and reported in the financial statements of the periods to which
they relate.
a. Accrual basis
b. Entity
c. Going concern
d. Time period
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16. Accounting for inventories by applying the concept of lower of cost or net realizable value is an example
of the application of
a. comparability
b. consistency
c. materiality
d. prudence

17. It is an increase in economic benefits during an accounting period in the form of an inflow or increase in
asset or decrease in liability that results in increase in increase in equity, other than contribution from
equity participants.
a. Gain
b. Income
c. Profit
d. Revenue

18. The measurement bases used in financial accounting include

a. historical cost and current cost only
b. historical cost, current cost and realizable value only
c. historical cost, current cost and present value only
d. historical cost, current cost, realizable value and present value

19. What is the purpose of information presented in notes to the financial statements?
a. To correct improper presentation in the financial statements
b. To present management’s responses to auditor comments
c. To provide disclosures required by generally accepted accounting principles
d. To provide recognition of amounts not included in the total of the financial statements

20. The quality that makes financial information needed and worthy for the purpose it was prepared is
a. completeness
b. neutrality
c. relevance
d. timeliness

21. These provide narrative description or disaggregation of items disclosed in the financial statements and
information about items that do not qualify for recognition.
a. Accounting policies
b. Nonfinancial reports
c. Notes
d. Recognized gains and losses

22. The assumption that a business enterprise will not be sold or liquidated in the near future is known as the
a. conservative assumption
b. economic entity assumption
c. going concern assumption
d. monetary unit assumption

23. A complete set of financial statements comprises all of the following except
a. notes, comprising a summary of significant accounting policies and other explanatory notes.
b. reports and statements such as environmental reports and value added statements.
c. statement of financial position, statement of comprehensive income and statement of changes in
equity.
d. statement of cash flows.

24. Expense is
I. an increase in economic benefit in the form of increase in asset or decrease in liability that results in
increase in equity other than contribution from equity participants.
II. a decrease in economic benefit in the form of decrease in asset or increase in liability that results in
decrease in equity, other than distribution to equity participants.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

25. Which is not an ingredient of relevance?

a. The information can help users increase the likelihood of correctly predicting the outcome of events.
b. The information enables users to confirm or correct earlier expectations.
c. The information is needed and worthy for the purpose it was prepared.
d. The information represents faithfully the transactions.
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26. According to the Framework, there are four ways of enhancing usefulness of accounting information
found in financial statements. Which of the four items below is obviously not one of them?
a. The financial statements should be prepared in accordance with generally accepted accounting
principles.
b. The information should be verifiable and capable of being replicated by independent measures using
the same measurement basis.
c. The information should be communicated early enough for use by decision makers.
d. The information should enable users to identify similarities and differences between at least two sets
of economic circumstances.

27. Which statement is incorrect concerning materiality?

a. Information is material if its omission or misstatement could influence the economic decisions of users
taken on the basis of the financial statements.
b. Materiality depends on the size of item or error judged in the particular circumstances of its omission
or misstatement.
c. Materiality is a fundamental qualitative characteristic rather than a threshold or cut off point in
determining useful information.
d. Materiality is dependent on professional judgment because no threshold limit is defined in the
framework or accounting standard.

28. This arises in the course of ordinary regular activities of the entity and is referred to by a variety of
different names including sales, fees, interest, dividends, royalties and rent.
a. Gain
b. Income
c. Profit
d. Revenue

29. The accrual basis is most useful for

a. determining the amount of dividends an entity should pay.
b. predicting the cash position of an entity.
c. predicting the long-term financial performance of an entity.
d. determining the amount of income tax due of an entity.

30. Which is not an ingredient of faithful representation?

a. Completeness
b. Form over substance
c. Freedom from error
d. Neutrality

31. Which statement is incorrect concerning capital maintenance concept?

a. Generally, the holding gains are treated as capital maintenance adjustment and therefore part of
equity.
b. Increases in the prices of assets held over the period are conventionally referred as holding gains and
conceptually are not profits.
c. Under the concept of financial capital maintenance, capital is defined in terms of nominal monetary
units.
d. Under the concept of physical capital maintenance, capital is defined in terms of physical productive
capacity.

32. It is the quality of information that assures information is reasonably free from error and bias and reliably
represents what it purports to represent.
a. Materiality
b. Relevance
c. Faithful representation
d. Understandability

33. A decrease in net assets arising from peripheral or incidental transactions is called
a. capital expenditure
b. cost
c. expense
d. loss
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34. In complying with the objective of completeness, an accountant must determine the amount of disclosure
necessary. How much disclosure is enough?
a. All information that might be of interest to an owner of a business enterprise.
b. Information sufficient for a person without any knowledge of accounting to understand the statements.
c. Information sufficient to permit most persons coming in contact with the statements to reach an
accurate decision about the financial condition of the enterprise.
d. Information that is of sufficient importance to influence the judgment and decisions of an informed
user.

35. Charging the acquisition of an inexpensive trash bin to an expense account is an example of the
application of
a. consistency principle
b. cost principle
c. matching principle
d. materiality principle

36. Which statement is correct concerning comparative information?

I. Except when a standard or an interpretation permits or requires otherwise, comparative information
shall be disclosed in respect of the previous period for all amounts reported in the financial
statements.
II. Comparative information shall be included for narrative and descriptive information when it is relevant
to an understanding of the current period’s financial statements.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

37. It is the discounted value of the future net cash inflows that an item is expected to generate in the course
of business.
a. Historical cost
b. Present value
c. Fair value
d. Realizable value

38. Under the conceptual framework, an entity’s revenue may result from a/n:
a. decrease in a liability from primary operations
b. increase in a liability from primary operations
c. decrease in an asset from primary operations
d. increase in an asset from peripheral or incidental transactions

39. This is the amount of cash that could currently be obtained by selling the asset in an orderly disposal.
a. Present value
b. Fair value
c. Realizable value
d. Market value

40. Which statement is incorrect concerning the concept of capital?

a. The selection of the appropriate concept of capital should be based on the needs of the users of the
financial statements.
b. A financial capital concept is adopted if the users are primarily concerned with the maintenance of
nominal invested capital or purchasing power of invested capital.
c. A physical capital concept is adopted if the main concern of the users is the operating capability of the
entity.
d. A physical capital concept is adopted by most entities in preparing their financial statements.

41. The manner in which the accounting records are organized and employed within a business is referred to
as
a. Accounting system
b. Business document
c. Voucher system
d. Special journals

42. Accounting is often called the “language of business” because

a. it is easy to understand
b. it is fundamental to the communication of financial information
c. all business owners have a good understanding of accounting principles
d. accountants in many companies share financial information
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43. These are the principal means through which an entity communicates its financial information to those
outside it.
a. Managerial reports
b. Financial statements
c. Segment reports
d. Directors’ statements

44. The analytical phase of accounting which significantly portrays the liquidity, solvency, profitability of a
business.
a. Interpreting
b. Recording
c. Summarizing
d. Classification

44. The basic purpose of accounting is

a. to provide information useful in making economic decisions
b. to provide information useful only for investors
c. to provide information regarding the economic resources controlled by an entity
d. to provide business owners, politicians and other government officials an opportunity to evade taxes

45. These are the principal means through which an entity communicates its financial information to those
outside it.
a. Managerial reports
b. Financial statements
c. Segment reports
d. Directors’ statements

46. The analytical phase of accounting which significantly portrays the liquidity, solvency, profitability of a
business.
a. Interpreting
b. Recording
c. Summarizing
d. Classification

47. The basic purpose of accounting is

a. to provide business owners, politicians and other government officials an opportunity to evade taxes
b. to provide information useful in making economic decisions
c. to provide information useful only for investors
d. to provide information regarding the economic resources controlled by an entity

48. The Commission upon the recommendation of the Board shall within ninety (90) days from the effectivity
of the IRR, create an accounting standard setting body to be known as the
a. Accounting Standards Committee
b. Financial Reporting Standards Council
c. Financial Reporting Standards Committee
d. Financial Reporting Standards Board

49 FRSC shall be composed of

a. Fifteen members and a Chairman
b. Fourteen members with a Chairman
c. Fourteen members and a Chairman
d. Eight members and a Chairman

50. The role of the Securities and Exchange Commission in the formulation of accounting principles can best
be described as
a. consistently primary
b. consistently secondary
c. sometimes primary and sometimes secondary
d. non-existent

51. The principles, which constitute the ground rules for financial reporting, are termed “generally accepted
accounting principles”. To qualify as “generally accepted”, an accounting principle must
a. Usually guide corporate managers in preparing financial statements, which will be understood by
widely scattered stockholders.
b. Guide corporate managers in preparing financial statements which will be useful for collective
bargaining agreements with trade unions.
c. Guide an entrepreneur of the choice of an accounting entity like single proprietorship, partnership or
corporation.
d. Receive substantial authoritative support.
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52. Financial accounting is shaped to a significant extent, by the environment, and in particular all of the
following, except
a. The many uses and users which it serves
b. The overall organization of economic activity in society
c. The characteristics and limitations of financial accounting and financial statements
d. The means of measuring economic activity

53. Proper application of accounting principles is not dependent upon the

a. Existence of specific guidelines
b. Oversight of regulatory bodies
c. External audit function
d. Professional judgment of the accountant

54. The International Accounting Standards (IAS) are

a. Rules-based rather than principles-based
b. Principle-based rather than rules-based
c. Based on regulations not concepts
d. Focused on quantitative rules

55. The name that is presently used for standards issued by the International Accounting Standards is:
a. International Accounting Standards (IAS)
b. International Generally Accepted Accounting Principles (GAAP)
c. International Financial Accounting Interpretation (IFAI)
d. International Financial Reporting Standards (IFRS)

56. The purpose of the International Financial Reporting Standards (IFRS) is to

a. Issue enforceable standards which regulate the financial reporting of multinational entities.
b. Develop a uniform currency in which the financial transactions of entities throughout the world would be
measured.
c. Promote uniform accounting standards among the countries of the world.
d. Arbitrate accounting disputes between auditors and international entities.

57. International Financial Reporting Standards are applicable to the following entities:
a. Not-for-profit entities
b. Government activities
c. Government business enterprises
d. Public sector non-profit organizations

58. Once an accounting standard is established,

a. The standard is continually reviewed to see if modification is necessary.
b. The standard is not reviewed, unless Securities and Exchange Commission (SEC) makes a complaint.
c. The task of reviewing the standard to see if modification is necessary is given to PICPA.
d. The principle of consistency states that no revisions should ever be made to the standard.

59. The process of establishing financial accounting standards

a. Is a democratic process in that a majority of practicing accountants must agree with a standard before it
becomes implemented.
b. Is a legislative process based on rules promulgated by government agencies.
c. Is based solely on economic analysis of the effect each standard will have if it is implemented.
d. Is a social process which incorporates political actions of various interested user groups as well as
professional research and logic.

60. To qualify as a general accepted, accounting principle must

a. Usually guide corporate managers in preparing financial statements which will be understood by widely
scattered stockholders.
b. Guide corporate managers in preparing financial statements which will be used for collective bargaining
agreements with trade unions.
c. Guide entrepreneur of the choice of an accounting entity like a sole proprietorship, partnership or
corporation.
d. Receive substantial authoritative support.

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